Howework Bond Management
This homework is aimed to understand the duration measure, key rate durations, key rates on yield
curve and how parallel and non-parallel interest rates shifts will influence the value of the bond
portfolio.
Following tasks should be handled:
1. Download the current file of the SBI Bond components:
Supplied on the GREINA Website:
http://www.greinagmbh.ch/index.php?section=downloads&category=21
On this file, you will also find the current SWAP-Rates on CHF Interest rates.
2. Develop a Pivot table which groups all the bonds by Rating Class and Remaining Live (not
Duration). (Excel supports you with following formula: =TAGE360("13.10.2012";Q9;WAHR).
Divide the result by 360 so you get the corresponding years. Group the years with increments
of 1, starting with -0.5 years
3. With this structure, make different Pivot Tables with following values:
Average weighted Duration; Weighted Average Yield to Worst as well as weight.
To obtain the weighted Duration, you should multiply the duration with the weight of each
bond, then summarize in the cell. To get the weighted Duration, you have to divide the
Result with the weight in the Key Rate Class and Rating.
See Example:
4. Use the Yield Curve and Match the yields from the curve to the Key Rate classes. In the long
term interest rates, use linear interpolation to match the interest rates to the key rates.
5. Determine the difference from each key rate and class to the market rate which is the SWAP
Rate. You will now find the positive or negative Credit Spreads compared to the SWAP Rates
for each class.
6. Develop the forward rate curve to make judgment about the future interest rates. Make
assumptions about the expected BIP and Inflation to determine the economic interest rate.
Deviations of the forward rate curve to the economic interest rate might be explained by
market manipulation.
7. Make assumptions about upcoming forward rates based on your judgment of the future
economic development including manipulation by the SNB.
8. Redevelop a yield curve on your expected forward rates and determine the value change of
the bond portfolio based on your yield expectations.
9. If possible, try to make assumptions about the credit spread as well and incorporate that in
your yield assumptions by Rating Class.
10. Ones you have all this parameters together, you will know what the gain or loss on the
Benchmark will be.
11. Based on this Scenario, you can now choose your own weights of the Ratings and remaining
life in order to loos less or win more than the Benchmark (SBI).
Again, quite a job! Try to do it step by step and send part solutions for review.